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Net-zero ambitions for Indonesia

reen economic transformation

Indonesia’s ambitions to be net zero by 2060 “can drive the next stage in its economic transformation,” according to an International Energy Agency (IEA) report published in September 2022. The report states that the adoption, domestic development and export of innovative clean energy technologies, such as batteries, critical minerals and renewables equipment, all have “large growth potential.” The IEA estimates that Indonesia needs about US$8 billion per year in additional investments through 2030 to remain on track to achieve its sustainability goals. Meaningful reductions in greenhouse gases could be achieved through expanded use of renewable energy sources such as hydrogen and hydrogen-based fuels, nuclear, solar and wind, and carbon capture, all of which are in their commercial infancy in Indonesia.

Indonesia’s government is strongly committed to the climate issue and energy transition,

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says Bahlil Lahadalia, Indonesia’s Minister of Investment, referring to the increase in the country’s decarbonization targets from 29% to 31.8% (by its own efforts) or from 41% to 43.2% (with international support) by 2030.

“Being home to the world’s third largest tropical forest area, we understand the potential of our contribution to the world in terms of natural climate solutions,” continued Lahadalia.

To further Indonesia’s green credentials, Indonesia’s Ministry of Investment/BKPM has provided almost US$13 billion in sustainable investments to 69 projects including solar power plants in Banten and East Kalimantan and waste treatment in East Java. As part of its efforts to slow climate change, Indonesia also plans to launch a carbon exchange this year. Recently, the Financial Services Authority (OJK) launched OJK Regulation No. 14/2023 on carbon trading through carbon exchanges. This is a significant move for the country, as coal-fired plants generate more than half of Indonesia’s electric power and the country has the capacity to supply up to 20% of global carbon credit demand by 2030 exclusively from natural climate solutions (NCS), according to McKinsey. Only business entities operating in Indonesia will be allowed to trade allowances on the exchange, which will have a cap-and-trade system that limits pollution levels. In February, the Indonesian government launched the first phase of mandatory carbon trading for nearly 100 coal-fired power plants owned by state utility Perusahaan Listrik Negara (PLN), and it has made agreements to accelerate their closure. “We believe that a carbon market will address climate change issues. It is one part of our incentives to encourage sustainable finance and drive more green investment. Thus, a transparent, inclusive, and fair carbon economic ecosystem must be created,” says Lahadalia.

The global climate crisis is often characterized as a struggle between developed and developing nations. But framing it as such does not improve the global response. Instead, the solution is to shift the discourse in favor of international cooperation. Understanding the need to work together, Indonesia is inviting foreign investors to be part of its green economic transformation. The country’s green transition is both vital and ambitious—and offers immense opportunity in Southeast Asia’s largest economy, which is forecast to be the world’s fourth largest by 2050.

oving beyond coal

The country’s Just Energy Transition Partnership—an agreement between Indonesia and the United States, Japan, Canada, Denmark, the EU, France, Germany, Italy, Norway, and the United Kingdom, announced in November 2022 at the G20 Summit in Bali —will provide US$20 billion over the next three to five years to help speed Indonesia’s energy transition. The agreement specifies that renewable energy must comprise 34% of Indonesia’s power generation by 2030, up from 10% in 2022. A second program in Indonesia, under the Asian Development Bank’s Energy Transition Mechanism (ETM), aims to negotiate terms with power companies for early retirement of coal-fired plants. Late in 2022, ADB signed a memorandum of understanding with Cirebon Electric Power (CEP) to explore early retirement of its 660-megawatt coal-fired plant in West Java. Once a definitive agreement is reached, ADB is expected to provide an early retirement facility in the form of senior debt, on the condition that the tenor of the power purchase agreement between CEP and PLN will be shortened. Indonesia has also launched its ETM Country Platform, a government financing and investment framework that will fund and manage the country’s energy transition activities.

“Coordination and collaboration among stakeholders such as the government, the private sector, civil society, academia and the international community is important and will help foster a common vision,” continues the Minister. “This will also help to leverage expertise and resources.”

mmense opportunities

Indonesia burned a record amount of coal in 2022. While these programs are a good start, there is no denying that a lot more needs to be done. New renewable energy will account for 52% (or 20.9 gigawatts) of total power capacity added by 2030. This will require US$50 billion in investments, according to the National Electricity Supply Business Plan 2021-2030. The IEA report states that “international cooperation, technology transfer and financial support will be essential” to realize Indonesia’s net zero ambitions. It is time to lay aside the emphasis on disparities between countries’ efforts and ambitions to mitigate climate change, as no nation will escape its impacts. The development of clean energy value chains will significantly diversify Indonesia’s economy and could offer huge gains for enterprises with the required know-how. Through its natural landscape, Indonesia has the potential to make an enormous contribution to realizing the world’s net-zero ambitions and this should not go to waste.

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INDONESIA Driving the EV Revolution

INDONESIA

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A transformative and sustainable investment destination

1. https://www.goldmansachs.com/intelligence/pages/gs-research/the-path-to-2075-slower-global-growth-but-convergence-remains-intact/report.pdf 2. https://iea.blob.core.windows.net/assets/b496b141-8c3b-47fc-adb2-90740eb0b3b8/AnEnergySectorRoadmaptoNetZeroEmissionsinIndonesia.pdf 3. https://www.whitehouse.gov/briefing-room/statements-releases/2022/11/15/indonesia-and-international-partners-secure-groundbreaking-climate-targets-and-associated-financing/ 4. https://www.eco-business.com/news/indonesias-coal-burning-reaches-record-high-amid-rise-of-industrial-smelting/ 5. https://www.adb.org/news/adb-and-indonesia-partners-sign-landmark-mou-early-retirement-plan-first-coal-power-plant

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A green and low carbon economy is one of the main strategies to transform our economy. In the roadmap towards net zero emissions by 2060, Indonesia has set ambitious targets by 2030. They include 42% of new and renewable energy in the energy mix, dominated by solar, also utilization of 2 million electric cars and 13 million electric motorcycles. Thus, we are strengthening the incentives and regulations for green investment to mobilize more capital for green projects.

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A transformative and sustainable investment destination

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says Lahadalia.

The Reuters news staff had no role in the production of this content. It was created by Reuters Plus, the brand marketing studio of Reuters.

PRODUCED BY REUTERS PLUS FOR

The Reuters news staff had no role in the production of this content. It was created by Reuters Plus, the brand marketing studio of Reuters.

PRODUCED BY REUTERS PLUS FOR

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